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When To Pick Up Cloud As A Tool
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Sam Iam
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Sam Iam,
User Rank: Apprentice
3/18/2012 | 5:32:43 AM
re: When To Pick Up Cloud As A Tool
But companies are not buying cherry pickers (highly specialized workloads) from IBM SmartCloud, Azure, AWS. They are buying hammers (commoditized platform workloads), such as vanilla MS Server instances or vanilla RHEL instances. UR has scale advantages, but people use UR not due to pure scale advantages. They use them, as you mention, for rare needs. Utilities, like cloud services, sell a commodity service with a pure scale advantage.

"But if you sell by the byte and by the cycle, either you keep dropping prices, or you invite customers to figure out when they can run the same resources more cheaply themselves."

I don't know why this would be a problem for the "cloud" services industry, unless there is price fixing going on between the cloud providers. If someone is making a huge margin by not passing on Moore's Law savings to customers, another company will undercut them. I don't know why the market rules would not apply. If IBM or HP do not lower their server prices in line with advances, the other will start to gain share with lower prices. I don't know why this would be different for IBM and HP in the cloud market.

The benefits of the utility, or cooperative, model are not negated by regulation. Controlled monopolies allow utilities to build up scale that they would not be able to have in a completely open market, but the level of scale is the only thing that would change in an open market system. Without regulation, power cooperatives still would have the benefit of scale beyond what most individual businesses could achieve on their own, buying power beyond what individual businesses could achieve on their own, automation of processes through investment in tools which are ROI justified by scale, etc.

"Once you end up in a market subject to supply and demand, someone's demand could dry up your supply, and that's not something IT shops or CEOs are ready for."

CIOs are already in this world. Look at memory prices and scarcity over the last five years, sky rocketing due to demand for virtualized workloads. I don't know why the world changes when these servers are in a larger cloud provider data center instead of a smaller data center. If demand goes to the moon, e.g. large company x decides to buy 10,000 of a particular server, other companies are going to wait or pay more for those servers. The same would be true if company x buys the equivalent of 10,000 servers from a cloud provider. The others will have to wait until capacity is added or the prices will go up.
ArtWittmann
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ArtWittmann,
User Rank: Apprentice
3/14/2012 | 2:53:17 PM
re: When To Pick Up Cloud As A Tool
The question of the right analogy is a fair one. One reason why I think United Rentals is a reasonable analogy now is that UR doesn't have a lot of competition. UR spends a lot of capital to have resources that no one else has - maybe the tile saw is the wrong tool to look at. A cherry picker might be better. They have dozens, no one else has even one, not only because of the cost to buy, but also because of the cost to maintain. Sounds a lot like your argument about scales of economy for IBM and HP.

I think that what you say about scales of economy translating into cheaper systems for cloud providers to own and IT orgs to use could be true come day, but the market isn't there yet. Vendors are not yet in the habit of passing back to customers savings accrued from advances in technology.

Part of the problem may be the pricing model itself. As you say, hardware is cheap and gets cheaper, other factors don't. A pricing model that reflected this might have better sustainability over the long term. But if you sell by the byte and by the cycle, either you keep dropping prices, or you invite customers to figure out when they can run the same resources more cheaply themselves.

The electric utility model is interesting, but not right. For one thing, it's a regulated industry, and California has seen just how much trouble you can get into when you get the dance between provider and regulator wrong. I have no idea what would happen to electricity prices if you completely removed regulations, but I'm pretty sure I don't want to find out. Once you end up in a market subject to supply and demand, someone's demand could dry up your supply, and that's not something IT shops or CEOs are ready for.
Sam Iam
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Sam Iam,
User Rank: Apprentice
3/14/2012 | 7:55:28 AM
re: When To Pick Up Cloud As A Tool
Yes, it is true that for "big data" workloads you do not get the "elastic" benefit of the public cloud from a storage perspective, but that is over come by companies like IBM or HP being able to buy their own storage at a much lower cost than you can buy storage and storage management sw... and in much greater volumes. It is true that Walmart does not have a tremendous on-shelf advantage over the local grocery store as they both have to put appx. the same number of grapes on the shelf at any given time, but they don't pay the same price for grapes that the small store pays for grapes. Less true for AWS as they don't make their own gear, but they are not paying the same price for an x86 server as the company buying 10 a year.

Also, HW is cheap, HR and SW are expensive. The public cloud providers can automate an OS patch, for instance, and apply it to 10,000 nodes at once. They can spend the time creating terrific, specialized IT management tools for their environment which would not be cost feasible for a smaller company. The cloud providers are doing basically no OS, storage admin and little hypervisor and network admin. There are some serious automation factors to consider. Sure, you could build all of this in a private cloud, but unless you have serious volumes, it doesn't make sense to spend the millions to buy/create this sophisticated automation.

The reason the United Rentals analogy does not make sense is that there is no almost constant asset utilization by the rental company. The reason the rental of a saw is 25% of the purchase price for a weekend is that the saw, over its lifetime, spends most of the time sitting on the shelf. Not so with cloud compute assets. If you return it, those procs don't sit idle for months waiting for the next renter, they go back into the pool and are spun up very rapidly. You can rent compute resources from IBM or AWS for three-four years for less than the cost of buying the servers-storage-network through their depreciation cycle. It would cost you many, many times the cost of the saw to rent it from United Rentals through its entire depreciation cycle. There is also no applicability of automation in the analogy.

The more appropriate analogy is the electrical utility. Companies formerly created their own power for their manufacturing facilities and other needs. It was skill intensive, capital intensive and took tons of time. Then utilities came along (after electrical distribution, the internet of electrical power, became efficient). They provide three advantages over having a power plant on-site: 1) economies of scale. 2) automation 3) no need to worry about operational commodities, i.e. keeping the lights (computers) working. 1 and 2 = lower costs. 3 = More time to focus on competitive differentiation, less on operations. Now there are companies that have power plants on-site and do not use utilities, but they have huge electrical volume requirements which rival utility scale.

There is one major difference between electrical power and compute power. You don't have to audit and secure your electricity as you do with your data. Compliance and security validation is the major hurdle for public cloud.
ArtWittmann
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ArtWittmann,
User Rank: Apprentice
3/13/2012 | 1:49:19 AM
re: When To Pick Up Cloud As A Tool
Take a look at the first article linked above and you'll see what I'm talking about. At least at present, cloud services aren't keeping up with Moore's Law, so you actually can say that at some point, if things don't change, the public cloud will be more expensive, at least for raw compute resources. It's just a matter of time.

I suspect that time came for Zynga, and that had a lot to do with the timing of their switch to their private cloud architecture.
parkercloud
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parkercloud,
User Rank: Apprentice
3/12/2012 | 11:37:00 PM
re: When To Pick Up Cloud As A Tool
Simple question, how can Public cloud be compared against Private except on a case by case basis when there is no Private Cloud design standard? The answer is it can't, but it has been proven for example by Zynga that Private cloud can be done more cost effectively


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